Carter's Plan for U.S. Industry

By Julie Connelly

An election-year program of revitalized competition and tax cuts for 1981

Throughout the 1970s, the United States' position as the world's industrial powerhouse slowly diminished. Aging, inefficient factories and low productivity have made the nation less and less competitive in world markets. Now, business, labor, academic and government leaders are calling for the rebuilding of industry, a process often described by the catchword industrialization.

This week, in a ceremony in the East Room of the White House, President Carter is to present to a specially invited group of legislators, economists and businessmen his reindustrialization proposals. According to Presidential Press Secretary Jody Powell, the plan will be known as "revitalization, not reindustrialization, because we have got to go beyond reindustrialization."

This week's speech is likely to be the President's basic economic message for the election campaign. Carter will be attempting to offer a comprehensive economic plan to counter Republican Nominee Ronald Reagan's call for a 30% tax cut over the next three years and widespread reduction of Government regulation of business. The Carter proposal will focus on offering investment incentives to all industries and specific aid to those regions of the country that need technological overhaul, while charging Reagan with using a shotgun approach that will only worsen inflation.

The key segments of the Carter plan are expected to be:

Tax Cuts. Despite his strong opposition to any tax reduction before Election Day, Carter will recommend a tax cut of perhaps $30 billion, which will be effective next Jan. 1. As a means of stimulating business investment, the Administration will propose more liberalized tax writeoffs for new spending on factories and equipment.

The proposals could cost the Treasury up to $8 billion in forgone revenues next year. In addition, the President will propose a $14 billion to $16 billion cut in individual income taxes to offset the $15 billion Social Security tax increase that will occur in January.

New Energy Programs.

The White House will point to the $25 billion in programs to promote U.S. energy production and conservation that are already part of this year's Synthetic Fuels Corp. legislation. In addition, the President will promise to spend heavily for mass transportation and upgrade rail and port facilities for shipping coal. Three weeks ago, Carter told a meeting of the National Urban League that these energy proposals alone would create "literally millions of jobs."

Research and Development. The Administration is preparing a number of programs for technological research that cut across several industries and that no single group of manufacturers can afford. The Government, for example, might assist research into the development of new kinds of metals to reduce dependence on foreign raw materials. Some Government spending could promote technological breakthroughs that might have commercial applications. Business would be expected to share the cost of these programs with the Government.

Regional Assistance. The Administration plans to channel some federal subsidies into specific regions of the country that have been hard hit by declining industries, foreign competition, expensive energy and inadequate investment. The first recipient of such assistance is likely to be the factory belt stretching from Pennsylvania to Michigan that encompasses the auto, steel and rubber industries. Financing would be channeled through an existing Government agency such as the Economic Development Administration. The EDA would invest in large-scale projects and help industries to modernize their factories and improve or change their products in order to compete in world markets. Carter's economic renewal plan will probably also recommend the establishment of a national commission to be composed of representatives of Government, labor and business. This group would meet informally to discuss such issues as labor relations, investment and Government regulations for industry as a whole. One body already exists to discuss problems in the steel industry.

The experience of these tripartite groups has been mixed to date. Labor leaders find the concept appealing, although they would like such commissions to be policymaking rather than just advisory. Sociologist Amitai Etzioni, who coined the term reindustrialization and has done perhaps the most work on the subject, believes that three or four of these groups might be useful; but he is skeptical about their widespread use. Some businessmen, on the other hand, believe that tripartite committees offer the illusion of progress, but actually result in more bureaucracy and few changes.

Jimmy Carter has been under heavy pressure to propose an economic program because the dismal state of business appears to be one of his Administration's greatest weaknesses as the presidential campaign opens. But Carter received a bit of unexpected, though illusory, economic news last week: the Bureau of Labor Statistics reported that consumer prices did not increase in July. That was the first month that the cost of living had not risen in more than 13 years. But experts quickly admitted that this was a statistical fluke. The cost of food, automobiles and medical care continued to soar, but that was offset by the 5.7% decline in mortgages. Thus the prices that most people pay most often are still rising.

A more ominous economic sign last week was the extraordinary fall in corporate profits. Between April and June, company earnings plunged 18.2%, to $129.3 billion, the third biggest percentage decline since World War II. This means that firms will not have much spare cash in the future to spend on new investments that would create jobs and help end the recession.

While the President put the final touches on his program, some rebellious Senators moved forward with their own plans. Led by Louisiana's Russell Long, the Senate Finance Committee last week approved a $39 billion tax cut. Under the Constitution, all tax legislation must originate in the House, but the adept Senators attached the tax cut to a minor House-passed bill that would allow the Foundry United Methodist Church of Washington, D.C., to import six bells duty free.

Under the Finance Committee approved legislation, business would receive an $18 billion tax reduction through substantially faster depreciation of investments in plant and equipment. Individuals would have an income tax cut of as much as $22 billion in 1981. The Finance Committee proposal would mean for each taxpayer an average saving of $303.

The Senate Committee's largesse, though, is not likely to move quickly into law. Congress adjourns Oct. 4 so that its members can begin campaigning for reelection. It is doubtful that the full Senate will vote on the church bells-and-tax cut bill before then. The House leadership has indicated that it plans to support the President and will block any tax cut before Election Day.

Carter's new economic message has been carefully prepared and lobbied in an attempt to win as much election year support as possible. For the past three months, members of the executive committee of Carter's Economic Policy Group have been quietly lunching every other week with labor leaders and representatives from big and small business to discuss possible solutions to the U.S.'s severe economic problems. Originally, these lunches were intended to draw up programs for a second Carter term. But the deepening recession and the pressure of election year politics forced the President's men to shape those ideas into a plan that Carter could use right away.

The final round of consultations took place last week, when members of the Administration briefed seven important special interest groups: corporate representatives, municipal and state officials, leaders of trade associations, small businessmen, minorities, public interest groups and members of the financial community. Representatives of these groups met around a huge oval table in the somber, red-curtained Roosevelt Room in the White House. Said Presidential Aide Anne Wexler after the sessions: "All these groups will see some of their own ideas in the program, so there is sure to be a lot of support for it."

Not necessarily. Businessmen left the White House puzzled by briefings that lasted an hour and a half and remained blandly unspecific. Said one participant: "They will be marshmallow proposals, not substantive policy. I expect no bold tax initiatives, no bold regulatory initiatives." Many participants worried about the cost of the revitalization program. Though much of the plan involves repackaging existing programs, the Carter proposal is also certain to involve some additional federal spending.

Any plans to rebuild U.S. industry must amount to more than just an election year slogan. Many leading sectors of the economy have fallen badly behind America's world competitors, and U.S. business, labor and Government leaders must recognize that the nation's economy can only be modernized by moving out of technologically obsolete fields and into the industries of the future. New England is already showing how one region of the U.S. has achieved this development (see box). President Carter's reindustrialization program must thus be only the beginning of an effort to restore vigor to U.S. industry. After the cheering crowds of the presidential campaign have fallen still, the task of restoring American business to its former robust health will remain.

--By Julie Connelly. Reported by William Blaylock and Gisela Bolte/Washington

With reporting by William Blaylock, Gisela Bolte

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